Pensions in the Trenches: Are Rising City Pension Costs Crowding Out Public Services?

Authors

Sarah F. Anzia, Goldman School of Public Policy, University of California, Berkeley

History

Goldman School of Public Policy Working Paper (August 2017)

Abstract

Some experts claim that state and local governments have seen dramatic increases in their public pension costs and that pension spending is crowding out local public services. Others maintain that serious pension problems are limited to a small number of governments that have been especially irresponsible. However, no existing studies—nor the datasets they rely on—allow us to evaluate the extent to which local pension costs are actually rising, or whether pensions are crowding out services. In this paper, I analyze a new dataset of the annual pension expenditures of 219 municipal governments across the U.S. from 2005 to 2014. I find that 85% of the cities saw increases in their pension expenditures over this ten-year period. In the median city, inflation-adjusted pension expenditures increased by 45% in ten years, and the average increase was 69%. There is also considerable cross-city variation in the amount cities spend on pensions per employee, with typical cities spending about $7,000 per employee per year but some spending as little as $2,500 and others spending more than $20,000. And when I examine variation within cities over time, I estimate that a 10% increase in per-employee pension expenditures is associated with a 0.73% average drop in city employment the following year. These pension-induced employment reductions are most pronounced for non-public safety employees and for cities in states with collective bargaining laws. In addition, many cities are seeing cuts in areas other than employment: rising pension costs are also associated with reduced spending on construction and equipment.